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1337 (pronounced "leet") is the leetspeak spelling of "leet," which is the leetspeak word for "elite." It can be used either positively:

Dude, that backflip 720 was 1337!

... or negatively (usually said in a nerdy voice and heavily laden with sarcasm, implying that the person is a nerd):

Dude, that really small bunny hop was totally 1337, man!